21st Century Cures Act for Small Businesses Signed into Law

Employees Now Eligible to Receive Medical Reimbursements

President Obama signed the 21st Century Cures Act for qualified small business Health Reimbursement Arrangements (HRA) into law recently. The Act contains provisions which would allow eligible small employers to offer a health reimbursement arrangement funded solely by the employer and would reimburse employees for qualified medical expenses (including health insurance premiums).

Employers who qualify need to be aware of the following components of the Act:

  • Effective for tax years beginning after December 31, 2016. There was transition relief for plans offering these benefits that ends December 31, 2016 and extends the relief given in IRS Notice 2015-17.
  • The maximum reimbursement that can be provided under the plan is $4,950 or $10,000 if the HRA provided for family members of the employee.  The limits are prorated for a coverage period of less than a year.
  • An employer is eligible to establish a small employer health reimbursement arrangement if that employer (i) is not subject to the employer mandate under the Affordable Care Act (i.e., less than 50 full-time employees) and (ii) does not offer a group health plan to any employees.
  • To be a qualified small employer HRA the arrangement must be provided on the same terms to all eligible employees.  Benefits under the HRA may vary based on age and family-size price variations of an insurance policy in the relevant health insurance market.
  • Reimbursements are excluded from taxable income if the individual has minimum essential coverage and provides proof to the employer.
  • Employers must report contributions to a reimbursement arrangement on their employees’ W-2 each year and notify each participant of the amount of benefit provided under the HRA each year at least 90 days before the beginning of each year.
  • Employees covered by this HRA will not be eligible for subsidies for health insurance purchased under an exchange during the months that they are covered by the employer’s HRA.
  • HRAs are not considered a “group health plan” and will not be subject to COBRA (under the Code, ERISA and the Public Health Service Act).

The former guidance issued by the Internal Revenue Service (IRS) and the Department of Labor (DOL) – stating that HRAs would violate Affordable Care Act reforms and imposing penalties for these arrangements – has been overturned by the passing of these provisions.  However, the IRS and DOL guidance still prohibits this arrangement for larger employers.

For a copy of the new Act, please click here.

Please contact us with questions or assistance with the applicability of this Act on your business.

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